MULTIPLE CHOICE. the one that best completes the Room... 14) Suppose you notice that the market

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  • IVYTECHSTATECOLLEGEREGION14-BLOOMINGTON

    ECN101ECONOMICSFUNDAMENTALSFall2006

    Midterm_03

    Name___________________________________

    MULTIPLECHOICE.Choosetheonealternativethatbestcompletesthestatementoranswersthequestion.

    Usethefigurebelowtoanswerthefollowingquestions.

    1) JoerunsabusinessinwhichhismarginalbenefitofstayingopenforanadditionalhourisillustratedinFigure1.3.SupposethatweobserveJoestayingopen5hoursperday.Ifheisfollowingthemarginalprinciple,whatmusthismarginalcostbe?

    A) $32 B) $16 C) $40 D) $24

    1)

    2) Whichofthefollowingismostlikelytohaveaspillovercost?A) Asmokersneaksacigaretteinapublicrestroom.B) Anindividualeatstoomuchandgetsindigestion.C) Astudentwritesapaperinsteadofgoingtoaconcert.D) Noneoftheaboveislikelytohaveanegativespillover.

    2)

  • Usethefigurebelowtoanswerthefollowingquestions.

    3) Figure1.5illustratestherelationshipbetweenthepriceofpizzaandthenumberofpizzasapersonchoosestoconsume.Onthisfigure,asthepriceofpizzasrisesthispersonsconsumptionofpizzaswill:

    A) decrease. B) remainconstant.C) increase. D) noneoftheabove

    3)

    4) Supposethatyourtuitiontoattendcollegeis$8,000peryearandyouspend$5,000peryearonroomandboard.Ifyouwereworkingfulltime,youcouldearn$22,000peryear.Whatisyouropportunitycostofattendingcollege?

    A) $35,000 B) $13,000 C) $30,000 D) $27,000

    4)

    5) Thesetofallattainablecombinationsofgoodsandservicesisillustratedbythe:A) productionpossibilitiescurve. B) scarcitycurve.C) setofinfeasibleproduction. D) efficiencyfrontier.

    5)

    UnitsofCapital

    NumberofWorkers

    Output/Day

    5 0 05 1 1005 2 1805 3 2405 4 2805 5 300

    Table1.2

    6) ThefirmdepictedinTable1.2isfacingashort-runchoicebecause:A) capitalisfixed.B) thenumberofworkerscanonlybeincreasedto5.C) capitalandlaborarebothvariable.D) capitalandlaborarebothfixed.

    6)

  • 7) Theproductionpossibilitiescurveillustratestheeconomicconceptof:A) marginalanalysis. B) spilloverbenefits.C) supplyanddemand. D) scarcity.

    7)

    8) Supposeaninsurancecompanydeterminesthathalfofalllawyersarereckless.Theyestimatethattheaverageannualmalpracticecostis$25,000forrecklesslawyersand$3,000forcarefullawyers.Ifcarefullawyersarenotwillingtopaymorethat$5,000forinsurance,thecompanywillearnzeroeconomicprofitifthepriceofinsuranceis:

    A) $3,000. B) $14,000. C) $25,000. D) $5,000.

    8)

    9) Andydoesnotbothertolockthedoortohishousebecausehehastheftinsurance.Thisisanexampleof:

    A) apositivespillover. B) moralhazard.C) irrationalbehavior. D) adverseselection.

    9)

    10) Anexampleofagoodthatisrivalinconsumptionis:A) aradioprogram. B) publictransportation.C) acopyofaneconomicstextbook. D) aneconomicswebpage.

    10)

    SCENARIO1:Table8.1showstheamountofwastedischargedpermonthandproductioncostsfortwodifferenttypesoffirms,HandL.Supposethegovernmentissues3marketablepollutionpermitspermonthtoeachfirm.Eachpermitenablesthebearertodischargeonetonofwastepermonth.Accordingly,ifafirmusesall3ofitspermits,itcandischarge3tonsofwasteinthatmonth.

    Waste/ton FirmH:Totalcost/ton

    FirmL:Totalcost/ton

    5 80 804 95 903 125 1012 180 1131 250 1260 350 150

    Table8.1

    11) SupposefirmHhastogenerate4tonsofwaste,insteadof3tons,inonemonth.FirmH,therefore,hastobuya4thpermitfromanotherfirm,suchasL.WhatisthelowestpricethatfirmLwouldacceptinordertoselloneofitspermitstofirmH?

    A) $125 B) $12 C) $95 D) $30

    11)

    12) Coasebargainingsolutionsapplywhenthereare:A) alargenumberofaffectedpartiesandthetransactionscostsofbargainingarelow.B) asmallnumberofaffectedpartiesandthetransactionscostsofbargainingarelow.C) asmallnumberofaffectedpartiesandthetransactionscostsofbargainingarehigh.D) alargenumberofaffectedpartiesandthetransactionscostsofbargainingarehigh.

    12)

    13) Aconsequenceofglobalwarmingislikelytobe:A) adecreaseintheearthstotalagriculturaloutput.B) noeffectonpopulatedlandareas.C) adecreaseintotalrainfall.D) anincreaseinthedepthandwidthofthepolaricecaps.

    13)

  • 14) Supposeyounoticethatthemarketforusedbikesisdominatedbylemons(low-qualitybikes).Insuchasituation,ifyouareabuyerofusedbikes,youarefacedwith:

    A) perfectinformation. B) anadverseselectionproblem.C) apositiveexternality. D) symmetricinformation.

    14)

    Usethefigurebelowtoanswerthefollowingquestions.

    15) RefertoFigure9.2.WhatwouldcausefirmZtomovefromPointBtopointA?A) adecreaseinworkerproductivityB) anincreaseinthepriceoftheproductwhichisproducedbyfirmZC) adecreaseinwagesfrom$7to$5D) anincreaseinwagesfrom$5to$7

    15)

    16) Adecreaseinthedemandformusicians________thenumberofmusiciansemployed,and________thewagespaidtomusicians.

    A) decreases;increases B) increases;increasesC) decreases;decreases D) increases;decreases

    16)

    17) Therelationshipbetweenthewageandthequantityoflaborthatall workersarewillingtoprovideiscalled:

    A) marketlabordemand. B) individuallaborsupply.C) individuallabordemand. D) marketlaborsupply.

    17)

    18) Iftheminimumwageissetbelowtheequilibriumwage:A) thequantitydemandedofworkerswillbegreaterthanthequantitysupplied.B) wageswillriseandtotalemploymentwillrise.C) thequantitydemandedofworkerswillbelessthanthequantitysupplied.D) thequantitydemandedofworkerswillequalthequantitysupplied.

    18)

  • Usethefigurebelowtoanswerthefollowingquestions.

    19) RefertoFigure9.2.WhatwouldcausefirmZtomovefrompointBtopointA?A) adecreaseinthepriceoftheproductwhichisproducedbyfirmZB) anincreaseinwagesfrom$5to$7C) adecreaseinwagesfrom$7to$5D) anincreaseinworkerproductivity

    19)

    20) Alaborunioncomposedofbakerswouldmostlikelybea:A) industrialunion. B) unionofunions.C) cartel. D) craftunion.

    20)

    21) Onereasonthatcollegegraduatesearnhigherwagesthannon-graduatesisbecause:A) collegeattendanceservesasasignaloftheindividualsproductivity.B) collegegraduatesarelessequippedtodealwithtechnologicalchange,astheirskillsare

    technology-specific.C) collegegraduatesarealwayslessintelligentthannon-collegegraduates.D) therearenoadditionalskillslearnedincollegethatincreaseproductivity.

    21)

    SCENARIO1:Imaginethataneconomyproducestwogoods,hotdogsandbaseballs.Intheyear2000theeconomyproduces20hotdogsand15baseballs,andthepricesofhotdogsandbaseballswere$2and$5,respectively.Intheyear2001theeconomyproduces25hotdogsand20baseballs,andthepricesofhotdogsandbaseballswere$3and$6,respectively.

    22) BasedonScenario1,realGDPgrewbyabout________percentfrom2000to2001.A) 30 B) 1.30 C) 222 D) 130 E) 12.2

    22)

  • 23) IfrealGDPwere100inyear1and90inyear2,thegrowthrateofrealGDPbetweentheseyearswouldbe:

    A) 0percent.B) 90percent.C) 5percent.D) 10percent.E) noneoftheabove

    23)

    24) Realgrossdomesticproduct(GDP)isameasureofGDPthat:A) controlsfordifferencesinunitsofmeasurement.B) accountsforchangesovertimeinthemixofgoodsandservicesproducedinaneconomy.C) takesintoaccountallaspectsoftheeconomy.D) adjustsforpricechanges.E) alloftheabove

    24)

    25) GDPunderstatesthevalueofoutputproducedbyaneconomybecauseit:A) excludesenvironmentaldegradationcausedbyincreasedoutputproduction.B) excludestransactionsthatdonottakeplaceinorganizedmarkets,suchashome-cooked

    meals.C) includesvalueaddedfromtheundergroundeconomy,suchastipstakenunderthetable.D) Alloftheabovearecorrect.E) Noneoftheaboveiscorrect.

    25)

    26) ThedifferencebetweenU.S.GDPandU.S.GNPisthatGDPincludes________andexcludes________.

    A) incomeofdomesticfirmsproducingintheU.S.;incomeofU.S.firmsproducinginforeigncountries

    B) incomeofforeignfirmsproducingintheU.S.;incomeofU.S.firmsproducinginforeigncountries

    C) incomeofdomesticfirmsproducingintheU.S.;incomeofforeignfirmsproducinginforeigncountries

    D) incomeofU.S.firmsproducinginforeigncountries;incomeofforeignfirmsproducingintheU.S.

    E) noneoftheabove

    26)

    27) Supposeaneconomyconsistsof300,000individuals16yearsandolder,160,000areemployed,and18,000areunemployedbutactivelyseekingwork.Inthisexamplethelaborforceis:

    A) 140,000.B) 160,000.C) 300,000.D) 178,000.E) Cannotbedeterminedfromtheinformationgiven.

    27)

  • ThefollowingtableliststhebasketofgoodsintheCarnivorePriceIndex.Assume1993isthebaseyear.

    1993Quantity

    1993Price

    1994Quantity

    1994Price

    1995Quantity

    1995Price

    Steak 4 $3 4 $3.5 4 $4PorkChops 5 $2 5 $3.0 5 $3

    Liver 3 $2 3 $1.0 3 $1.5Table11.1

    28) UsingtheinformationinTable11.1,theCarnivorePriceIndexfor1993is:A) 100. B) 114. C) 109. D) 28. E) 41.

    28)

    29) Economistssaythattheeconomyisatfullemploymentwhenthe:A) structuralunemploymentrateiszero.B) totalunemploymentrateiszero.C) naturalunemploymentrateiszero.D) frictionalunemploymentrateiszero.E) noneoftheabove

    29)

    ThefollowingtableliststhebasketofgoodsintheCarnivorePriceIndex.Assume1993isthebaseyear.

    1993Quantity

    1993Price

    1994Quantity

    1994Price

    1995Quantity

    1995Price

    Steak 4 $3 4 $3.5 4 $4PorkChops 5 $2 5 $3.0 5 $3

    Liver 3 $2 3 $1.0 3 $1.5Table11.1

    30) UsingtheinformationinTable11.1,theinflationratefrom1994to1995is:A) 127%. B) 41%. C) -23%. D) 109%. E) 11%.

    30)

    31) TheprincipalreasonwhytheGDPdeflatorandtheCPIbothoverstateactualchangesinpricesisthat:

    A) thebasketofgoodspurchasedbyconsumerschanges.B) itishardtomeasurequalitychanges.C) pricedataisofteninaccurate.D) alloftheaboveE) Noneoftheabove;thetwopriceindicesdonotoverstateactualpricechanges.

    31)

  • Usethefigurebelowtoanswerthefollowingquestions.

    32) Sotolandisasmallcountrythatproducestwotypesofproducts,airconditionersandsnowmobiles.ItsproductionpossibilitiesfrontierisillustratedinFigure1.2.Whichcombinationofairconditionersandsnowmobilesisattainable?

    A) 400airconditionersand300snowmobilesB) 200airconditionersand800snowmobilesC) 600airconditionersand500snowmobilesD) 400airconditionersand600snowmobiles

    32)

    33) Sotolandisasmallcountrythatproducestwotypesofproducts,airconditionersandsnowmobiles.ItsproductionpossibilitiesfrontierisillustratedinFigure1.2.Whichcombinationofairconditionersandsnowmobilesisattainableandefficient?

    A) 600airconditionersand0snowmobilesB) 200airconditionersand800snowmobilesC) 200airconditionersand500snowmobilesD) 600airconditionersand300snowmobiles

    33)

    34) Theobservationthatsomeairlinesrunflightswhicharemostlyemptysuggeststhat:A) airlinesconsideronlyimplicitcostswhendecidingtorunaflight.B) airlinesconsiderbothfixedandmarginalcostswhendecidingwhethertorunaflight.C) airlinesconsideronlythefixedcostswhendecidingwhethertorunaflight.D) airlinesconsideronlythemarginalcostswhendecidingwhethertorunaflight.

    34)

  • Hoursofoperation

    Marginalcost

    1 42 83 124 165 206 247 28

    Table1.1

    35) JuliannerunsabusinessinwhichhermarginalcostofstayingopenforanadditionalhourisillustratedintheTable1.1.SupposethatJuliannestaysopen5hoursperday.Ifsheisfollowingthemarginalprinciple,whatmusthermarginalbenefitbe?

    A) $16 B) $24 C) $10 D) $20

    35)

    36) Anadvantageofpollutiontaxesthatisnotofferedbycommand-and-controlpoliciesisthat:A) therearedecreasesinthedemandsforgoodsthatcausepollution.B) apollutiontaxdecreasesthepriceofthepollutinggood.C) zeropollutionisproduced.D) taxrevenuesaregeneratedthatmaybeusedtocleanuppollution.

    36)

    37) Adistinguishingfeatureofapublicgoodisthatit:A) ispossibletoexcludepeoplewhopayforthepublicgood.B) mayhaveexternalbenefits.C) mayhaveexternalcosts.D) isnotpossibletoexcludepeoplewhodontpayforthepublicgood.

    37)

    38) Buyersinthemarketforusedguitarsaregettingmorepessimisticaboutthepossibilityofgettingagoodguitar.Thiswillcausethepriceofusedguitarsto________andthepercentageofgoodusedguitarsto________.

    A) increase;increase B) decrease;decreaseC) decrease;increase D) increase;decrease

    38)

    39) Supposethatthepriceofsteelincreases.Whatshouldhappeninthelabormarket?A) Fewersteelworkerswillbeemployed,atahigherwage.B) Moresteelworkerswillbeemployed,atalowerwage.C) Moresteelworkerswillbeemployed,atahigherwage.D) Fewersteelworkerswillbeemployed,atalowerwage.

    39)

    40) Thelong-runlabordemandcurveis:A) mightbemoreorlesselasticthantheshortrunlabordemandcurve.B) perfectlyelastic(horizontal).C) lesselasticthantheshortrunlabordemandcurve.D) moreelasticthantheshortrunlabordemandcurve.

    40)

    41) Ifaneconomyproduced10bushelsofcornat$20eachand20jarsofpeanutbutterat$3eachin1995,realgrossdomesticproduct(GDP)wouldbe:

    A) $60. B) $2,600. C) $260. D) $200.

    41)

  • 42) Supposethatin2004acountryproduced20computersatapriceof$2,000eachand4carsatapriceof$5,000each.In2005acountryproduced15computersatapriceof$3,000eachand5carsatapriceof$6,000each.Whatdoweknowhashappened?

    A) NominalGDPhasincreased,andrealGDPhasincreased.B) NominalGDPhasincreased,andrealGDPhasdecreased.C) NominalGDPhasdecreased,andrealGDPhasincreased.D) WeonlyknowthatnominalGDPhasincreased.E) NominalGDPhasdecreased,andrealGDPhasdecreased.

    42)

    43) WhichoneofthefollowingstatementsistrueoftheConsumerPriceIndex?A) Itunderstatesthetruerateofinflation.B) Itdoesnottakeaccountofthepriceofimportedgoodsandservices.C) Thegoodsusedtoconstructtheindexdonotchangefrommonthtomonth.D) Itdoesnottakeintoaccountthepriceofusedgoods.E) Alloftheabovearetrue.

    43)

    44) Unemploymentthatnaturallyoccursduringthenormalworkingsofaneconomyaspeoplechangejobsandmoveacrossthecountryiscalled:

    A) naturalunemployment.B) cyclicalunemployment.C) structuralunemployment.D) functionalunemployment.E) frictionalunemployment.

    44)

    Usethefigurebelowtoanswerthefollowingquestions.

    45) ConsiderFigure8.1,whichdepictsthesupplyanddemandforcoal.Assumecoalproductioncreatesexternalcosts.Ifthegovernmentimposesapollutiontaxoncoalproductionthe:

    A) demandcurveforcoalwouldshifttotheleft.B) demandandsupplycurvesforcoalwouldshifttotheleft.C) supplycurveofcoalwouldshifttotheright.D) supplycurveofcoalwouldshifttotheleft.

    45)

  • 46) Inproductmarkets:A) householdandfirmsdemandinputs.B) firmssupplyproductswhichhouseholdsdemand.C) householdsdemandinputswhichfirmssupply.D) householdssupplygoodsandserviceswhichbusinessesdemand.E) householdssupplyinputswhichfirmsdemand.

    46)

    ThefollowingtableliststhebasketofgoodsintheCarnivorePriceIndex.Assume1993isthebaseyear.

    1993Quantity

    1993Price

    1994Quantity

    1994Price

    1995Quantity

    1995Price

    Steak 4 $3 4 $3.5 4 $4PorkChops 5 $2 5 $3.0 5 $3

    Liver 3 $2 3 $1.0 3 $1.5Table11.1

    47) UsingtheinformationinTable11.1,theinflationratefrom1993to1995is:A) 54%. B) 27%. C) 41%. D) 14%. E) 9%.

    47)

    48) Ifrealsalariesdecreasebutnominalsalariesdonot,thismeansthat:A) priceshavefallen.B) thepurchasingpowerofmoneyhasincreased.C) priceshaverisen.D) priceshavenotchanged.

    48)

    Numberofworkers

    Unitsofoutput

    2 1003 1604 2105 2506 2807 3008 310

    Table9.1:ProductionofTonystulips

    49) RefertoTable9.1.Themarginalproductoftheeighthunitoflaboris:A) 10. B) 310. C) 38.75. D) 1.25.

    49)

    50) Anintermediategoodis:A) agoodusedonlyintheproductionofotherproducts.B) countedaspartofGDP.C) agooddirectlyconsumedbyindividuals.D) BothAandCarecorrect.E) BothBandCarecorrect.

    50)

  • AnswerKeyTestname:MIDTERM__03

    1) A2) A3) A4) C5) A6) A7) A8) C9) B10) C11) B12) B13) A14) B15) A16) C17) D18) D19) A20) D21) A22) A23) E24) D25) B26) B27) D28) A29) E30) E31) B32) A33) D34) D35) D36) D37) D38) B39) C40) D41) C42) B43) C44) E45) D46) B47) B48) C49) A50) A