AC 2203 Long Exam 1

1.
Scarcity:
A. exists because resources are unlimited while human wants are limited.
B. means we are unable to have as much as we would like to have.
C. will likely be eliminated as technology continues to expand.
D. is not an issue addressed in economics.

ANSWER: B

2.
The central question in economics is how to:
A. deal with the problem of scarcity.
B. change government economic policy.
C. change people's wants to match their needs.
D. manage money and become wealthy.

ANSWER: A

3.
Which of the following is included in the study of macroeconomics?
A. Salaries of college professors.
B. Computer prices.
C. Unemployment in the nation.
D. Silver prices.

ANSWER: C

4.
The Latin expression Ceteris paribus means:
A. everything else being equal.
B. economic model.
C. economists are partly right.
D. partial scarcity is certain.

ANSWER: A

5.
Computer programs or software are an example of:
A. land.
B. labor.
C. capital.
D. none of these.

ANSWER: C
6.
Economics is the study of how people:
A. vote for political leaders who decide what is to be produced.
B. make choices to produce and consume goods and services.
C. establish social institutions that maximize well-being.
D. develop value systems that affect their consumption choices.

ANSWER: B

7.
Someone notices that sunspot activity is high just prior to recessions and concludes that
sunspots cause recessions. This person has:
A. confused association and causation.
B. misunderstood the Ceteris paribus assumption.
C. used normative economics to answer a positive question.
D. built an untestable model.

ANSWER: A

8.
Which of the following is a normative economic statement?
A. The unemployment rate for the United States is currently 5.4 percent.
B. The inflation rate in the United States is too high.
C. An increase in the price of a good will reduce the amount purchased.
D. Higher profits in an industry will attract more entrepreneurs into the industry.

ANSWER: B

9.
Complete the following analogy: A criminal is to a police artist's sketch as the economy
is to:
A. money.
B. an economic model.
C. a resource.
D. Ceteris paribus.
E. scarcity.

ANSWER: B

10.
"As soon as a mayor announced his/her 'get tough on crime' policy on New Year's day,
criminals got scared and the crime rate went down." Suppose that the lower crime rate
was actually caused by freezing cold temperatures in January⎯it was just too cold for
anybody to be out robbing other people. Which fundamental hazard of the economic
way of thinking did the mayor make?
A. believing that what's good for one person is good for the whole group (the fallacy of
composition)
B. failing to take into account the benefits of crime (the payoff fallacy)
C. believing that association is the same as causation
D. failing to understand the difference between positive and normative economics.

ANSWER: C

11.
Suppose that the alternative uses of an hour of your time in the evening, ranked from
best to worst, are (1) study economics, (2i) watch two half-hour TV sitcoms, (3) play
pool, and (4) jog around town. You can only choose one activity. What is the opportunity
cost of studying economics for one hour, given this information?
A. Jogging around town.
B. Watching two half-hour TV sitcoms.
C. Playing pool.
D. The sum of watching two half-hour TV sitcoms, playing pool, and doing your laundry.

ANSWER: B

12.
The amount of a good that must be given up to produce another good is the concept of:
A. scarcity.
B. specialization.
C. trade.
D. efficiency.
E. opportunity cost.

ANSWER: E
13.
Exhibit A Production possibilities curve

If the economy represented in Exhibit A is operating at Point W:

A. no tractor product must be forgone to produce more food in the current period.
B. resources are not fully used.
C. some tractor production must be forgone to produce more food in the current period.
D. increased food production would be impossible.

ANSWER: C

14.
The process of accumulating capital is called:
A. capitalization.
B. loanable funds.
C. investment.
D. debt management.

ANSWER: C
15.
Exhibit B Production possibilities curve data

Consumption Capital
Goods Goods
10 0
  9 1
  7 2
  4 3
  0 4

In Exhibit B, according to the information, the opportunity cost of producing 3 units of

capital is:
A. 3 units of consumption goods.
B. 4 units of consumption goods.
C. 6 units of consumption goods.
D. 7 units of consumption goods.

ANSWER: A

16.
After the terrorist attacks on September 11, 2001, the United States began devoting
substantial resources toward the War on Terrorism, homeland security, and relief
efforts. As long as our resources were being used efficiently, the production possibilities
curve would suggest that:
A. we will have to give up the production of other goods that could have been produced
with these resources.
B. we will be able to produce the same amount of other goods as before.
C. the military spending will result in an outward shift in the production possibilities
curve but that the relief effort will result in an offsetting inward shift.
D. we will be unable to devote the resources necessary toward these efforts unless
there is an improvement in technology.

ANSWER: A
17.
Exhibit C Production possibilities curve

For the economy shown in Exhibit C, which of the following is true when the economy is
at point A?
A. More cars are being produced than are needed.
B. There must be resources that are not being used fully.
C. Some car production must be forgone in order to produce more grain in the same
period.
D. Increased grain production would be impossible.

ANSWER: C

18.
Exhibit D Production possibilities curve

In Exhibit D, if the economy decides to locate at point E, then:

A. this is the best choice for this economy.
B. the maximum number of consumption goods is being produced.
C. the economy has not achieved full employment.
D. the economy could not survive because no food is being produced.
E. the economy has not achieved maximum efficiency.

ANSWER: D

19.
A production possibility graph slopes down because of:
A. the law of increasing costs.
B. nonhomogeneous resources.
C. inefficiency.
D. improper output mix.
E. unemployment.

ANSWER: B

20.
Exhibit E Production possibilities curve

In Exhibit E, to move from U to B, the opportunity cost:

A. would be 4 units of consumption goods.
B. would be 2 units of capital goods.
C. would be zero.
D. would be 5 units of capital goods.
E. cannot be estimated.

ANSWER: C
21.
The "other things being equal" clause in the law of demand does not allow which of the
following factors to change?
A. Consumer income.
B. The prices of other goods.
C. Consumer tastes and preferences.
D. All of these.

ANSWER: D

22.
Other things being equal, the effect of an increase in the price of Coca-Cola would
cause a(n):
A. upward movement along the demand curve for Coca-Cola.
B. leftward shift in the demand curve for Coca-Cola.
C. downward movement along the demand curve for Coca-Cola.
D. rightward shift in the demand curve for Coca-Cola.

ANSWER: A

23.
A rightward shift in the demand curve is called a(an):
A. decrease in output.
B. decrease in demand.
C. increase in demand.
D. increase in income.

ANSWER: C

24.
If consumer incomes go up and cars are a normal good, the effect on the demand for
cars ceteris paribus, will be a(n):
A. upward movement along the demand curve for cars.
B. downward movement along the demand curve for cars.
C. rightward shift in the demand curve for cars.
D. leftward shift in the demand curve for cars.

ANSWER: C

25.
Assuming steak and potatoes are complements, other things being equal, an increase
in the price of steak, will:
A. increase the demand for potatoes.
B. decrease the demand for potatoes.
C. increase the demand for steak.
D. decrease the demand for steak.
ANSWER: B

26.
If the price of hot dogs increases, what will happen in the market for potato chips, a
complementary good?
A. Demand will increase.
B. Quantity demanded will increase.
C. Demand will decrease.
D. Quantity demanded will decrease.
E. Supply will decrease.

ANSWER: C

27.
If more people enter medical school, we can expect:
A. the demand for doctors to increase.
B. the supply of doctors to increase.
C. the demand for doctors to decrease.
D. the supply of doctors to decrease.
E. no effect on the supply or demand of doctors⎯just a movement along the curves.

ANSWER: B

28.
If there is a surplus in the oil market, then the price of oil will:
A. rise.
B. fall.
C. remain unchanged.
D. react unpredictably.

ANSWER: B

29.
Which of the following can bring about a change in the quantity demanded?
A. Change in supply.
B. Change in quality.
C. Change in income.
D. Change in product price.
E. Change in taste.

ANSWER: D

30.
We can find the market demand for pears by:
A. adding up all the prices people are willing to pay for pears.
B. multiplying the number of people times the price of pears.
C. adding up the number of pears that producers are willing to sell.
D. multiplying the number of pears by the price of pears.
E. adding up all the individual demand curves for pears.

ANSWER: E

31.
A rightward shift of a demand curve is called a(n):
A. increase in demand.
B. decrease in demand.
C. increase in quantity demanded.
D. decrease in quantity demanded.
E. increase in supply.

ANSWER: A

32.
Travel by bus and pawn-shop services would be expected to be examples of:
A. normal goods.
B. inferior goods.
C. substitute goods.
D. complementary goods.

ANSWER: B

33.
Sugar and honey are viewed as substitutes for each other in many cooking applications.
If the price of sugar rises, we would expect the:
A. demand for honey to increase.
B. demand for honey to decrease.
C. quantity demanded of honey to decrease.
D. price of honey to decrease.
E. quantity demanded of honey to increase.

ANSWER: A

34.
When economists say the quantity supplied of a product has decreased, they mean the:
A. supply curve has shifted to the left.
B. supply curve has shifted to the right.
C. price of the product has risen, and consequently, suppliers are producing more of it.
D. price of the product has fallen, and consequently, suppliers are producing less of it.

ANSWER: D
35.
Which of the following would increase the supply of laptop computers?
A. Higher wage rates for the workers that produce laptop computers.
B. A technological improvement that lowers the cost of producing laptop computers.
C. An increase in the price of computer chips used to produce laptop computers.
D. All of these.

ANSWER: B

36.
Assume Congress passes a new tax of $2.00 per pack on cigarettes. The effect on the
supply curve is a(n):
A. decrease in supply.
B. increase in supply.
C. decrease in quantity supplied.
D. increase in quantity supplied.

ANSWER: A

37.
Which of the following best represents the effects of an increase in the price of coffee,
other things being equal?
A. A leftward shift in the demand curve for coffee.
B. A downward movement along the demand curve for coffee.
C. A rightward shift in the demand curve for coffee.
D. An upward movement along the demand curve for coffee.

ANSWER: D

38.
Three of the four events described below might reasonably be expected to shift the
demand curve for beef to a new position. One would not shift that demand curve. The
single exception is a(n):
A. change in people's tastes for beef.
B. increase in the money incomes of beef consumers.
C. fall in the price of beef.
D. change in the price of a product competitive with beef (e.g. pork).

ANSWER: C

39.
Suppose that X and Y are substitute goods. If the price of good X increases, we can
expect:
A. the demand for good X to shift to the left.
B. an upward movement along the demand curve for good Y.
C. the demand curve for good Y to shift to the right.
D. a downward movement along the demand curve for good Y.
E. the demand curve for good Y to shift to the left.

ANSWER: C

40.
Assuming that wheat and corn can both be grown on the same type of land, a decrease
in the price of corn, other things being equal, will cause a(n):
A. downward movement along the supply curve for wheat.
B. upward movement along the supply curve for wheat.
C. rightward shift in the supply curve for wheat.
D. leftward shift in the supply curve for wheat.

ANSWER: C