ECON 202 Exam 1 Study Guide
ECON 202 Exam 1 Study Guide Econ 202
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This 16 page Study Guide was uploaded by AnnMarie on Saturday January 9, 2016. The Study Guide belongs to Econ 202 at Louisiana Tech University taught by Dr. Karki in Winter 2016. Since its upload, it has received 863 views. For similar materials see Principles of Microeconomics in Economcs at Louisiana Tech University.
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Date Created: 01/09/16
1. Economics is best defined as the study of a. how society manages its scarce resources. b. how to run a business most profitably. c. how to predict inflation, unemployment, and stock prices. d. how the goverment can stop the harm from unchecked self-interest. 2. Your opportunity cost of going to a movie is a. the price of the ticket. b. the price of the ticket plus the cost of any soda and popcorn you buy at the theater. c. the total cash expenditure needed to go to the movie plus the value of your time. d. zero, as long as you enjoyed the movie and consider it worthwhile use of time and money. 3. Amaginal change is one that a. is not important for public policy. b. incrementally alters an existing plan. c. makes an outcome inefficient. d. does not influence incentives. 4. Adam Smith's “invisible hand” refers to a. the subtle and often hidden methods that businesses use to profit at consumers' expense. b. the ability of free markets to reach desirable outcomes, despite the self-interest of market participants. c. the ability of government regulations to benefit consumers, even if consumers are unaware of the regulations. d. the way in which producers or consumers in unregulated markets impose costs on innocent bystanders. 5. Governments may intervene in a market economy in order to a. protect property rights. b. correct a market failure due to externalities. c. achieve a more equal distribution of income. d.All the above. 6. If a nation has high and persisten inflation, the most likely explanation is a. the central bank creating excessive amounts of money. b. unions bargaining for excessively high wages. c. the government imposing excessive levels of taxation. d. firms using their monopoly power to enforce excessive price hikes. 7. You work as an assistant coach on the university swim team and earn $12 per hour. One day , yoiu decide to skip the hour-long practice and go to the county fair instead, which has an admission fee of $7. The opportunity cost of skipping practice and going to the fair, value in dollars, is a. $20 b. $12 c. $19 d. $7 8. Hannah and Brian need to decide which one of them will take time from work to complete the rather urgent task of changing the brakes on their car. Hannah is pretty good at car repairs; she can change the breaks in 1 hour. Brian is somewhat slow; it takes him 6 hours to change the breaks. Hannah earns $120 per hour as a personal trainer while Brian earns $15 per hour as a clerk. Keeping in mind that either Hannah or Brian must take time off from work to change the breaks, who has the lowest opportunity cost of competing the task? a. Hannah b. Brian c. Both 9. Dale is a guitar teacher and William is a tile layer. If Dale teaches William's daughter to play the guitar in exchange for William tiling Dale's kitchen floor, a. only William is made better off by trade. b. neither Dale or William are made better off by trade. c. both Dale and William are made better off by trade. d. only Dale is made better off by trade. 10. An economic model is a. a mechanical machine that replicates the functioning of the economy. b. a fully detailed, realistic description of the economy. c. a simplified representation of some aspect of the economy. d. a computer program that predicts the future of the economy. 11. The circular-flow diagram illustrates that, in markets for the factors of production, a. households are sellers, and firms are buyers. b. households are buyers, and firms are sellers. c. households and firms are both buyers. d. households and firms are both sellers. 12. Apoint inside the production possibilities frontier is a. efficient, but not feasible. b. feasible, but not efficient. c. both efficient and feasible. d. neither efficient nor feasible. 13. An economy produces hot dogs and hamburgers. If a discovery of the remarkable health benefits of hot dogs were to change consumer's prferences , it would a. expand the production possibilities frontier. b. contract the production possibilities frontier. c. move the economy along the production possibilities frontier. d. move the economy inside the production possibilities frontier. 14. All of the following topics fall within the study of microeconomics EXCEPT a. the impact of cigarette taxes on the smoking behavior of teenagers. b. the role of Microsoft's market power in the pricing of software. c. the effectiveness of antipoverty programs in reducing homeless. d. the influence of the government budge deficit on economic growth. 15. Which of the following is a positive, rather than a normative statement? a. Law X will reduce national income. b. Law X is a good piece of legislation. c. Congress out to pass law X. d. The president should veto law X. 16. All of the following topics are more likely to be studied by microeconomists EXCEPT a. The effect of a large government budget deficit on the economy's price level. b.Aconsumer's optimal choice of a flat-screen TV. c.Afirm's decision about the size of its new factory. 17. Micheal is a photographer. He has to spend $230 to spend and wants to buy either a flash for his camera or a new tripod. Both the flash and the tripod cost $230, but he can purchase only one. This illustrates the priniciple that a. people repond to incentives. b. people face trade-offs. c. trade can make everyone better off. d. rational people think at the margin. 18. Which of the following is true? a. Efficiency refers to the size of the economic pie, equality refers to how the pie is divided. b. Efficiency and equality can both be achieved if the economic pie is cut into equal poeces. c. Government policies usually improve upon both equality and efficiency. d. The economic pie is a pecan pie. 19-20. Suppose Canada produces only two goods: alfalfa and DVDs. The following graph shows Canada's current production possibilities frontier, along with six outputs combinations represented by black points (plus symbols) labeledAto F. 19. Which of the six output combinations are unattainable? a. B and F b.Aand D c. B and A d. D and C 20. Which of the six output combinations are attainable and efficient? a. E, F, D, and C b. E and F c. D and C d. B andA 21. In an hour, David can wash 2 cars or mow 1 lawn, while Bill can was 3 cars or mow 1 lawn. Who has the absolute advantage in car washing, and who has the absolute advantage in lawn mowing? a. David in washing, Bill in mowing. b. Bill in washing, David in mowing. c. David in washing, neither in mowing. d. Bill in washing, neither in mowing. 22. Once again, in an hour, David can wash 2 cars or mow 1 lawn, while Bill can was 3 cars or mow 1 lawn. Who has the comparative advantage in car washing, and who has the comparative advantage in lawn mowing? a. David in washing, Bill in mowing. b. Bill in washing, David in mowing. c. David in washing, neither in mowing. d. Bill in washing, neither in mowing. 23. When two individuals produce efficiently and then make a mutually beneficial trade based on comparitive advantage, a. they both obtain consumption inside their production possibilities frontier. b. they both obtain consumption outside their production possibilities frontier. c. each individual consumes a point on his own possibilities frontier. d. one individual consumes inside his production possibilities frontier, while the other consumes outside of his. 24. Suppose that in the United States, producing an aircraft takes 10,000 hours of labor and producing a shirt takes 2 hours of labor. In China, producing an aircraft takes 40,000 hours of labor, while producing a shirt takes 4 hours of labor. Will these nations trade? a. China will export aircraft, while the United States will export shirts. b. China will export shirts, while the United States will export aircraft. c. Both nations will export shirts. d. There are no gains from trade in this situation. 25. Maria can cook dinner in 30 minutes and wash the laundry in 20 minutes. Her roomrame takes half as long to do each task. How should the roommates allocate the work? a. Maria should do more of the cooking based on her comparative advantage. b. Maria should do more of the washing baded on her absolute advantage. c. Maria should do more of the washing based on her comparative advantage. d. There are no gains from trade in this situation. 26. William can read 20 pages of economics in an hour. He can also read 50 pages of sociology in an hour. He spend 5 hours per day studying. What is his opportunity cost of reading 100 pages of sociology? a. 40 pages of economics b. 20 pages of economics c. 100 pages of economic d. none of the above 27-29. Tim andAlyssa are farmers. Each one owns a 20-acre plot of land. The following table shows the amount of corn and rye each farmer can produce per year on a given acre. Each farmer chooses wheather to devote all acres to producing corn or rye or produce corn on some of their land and rye on the rest. Corn Rye (Bushels per acre) (Bushels per acre) Tim 40 8 Alyssa 28 7 27. Who has the absolute advantage in the production of corn and rye? a. Tim has the absolute advantage in the production of both corn and rye. b. Tim had the absolute advantage in the production of corn butAlyssa has the absolute advantage in the of production of rye. c.Alyssa has the absolute advantage in the production of both corn and rye. d.Alyssa had the absolute advantage in the production of corn but Tim has the absolute advantage in production of rye. 28. Tim's opportunity cost of producing 1 bushel of rye is _______ bushels of corn whereas Alyssa's opportunity cost of producing 1 bushel of rye is _____ bushels of corn. a. 5 and 4 b. 4 and 5 c. 10 and 8 d. 8 and 10 29. Because Tim has a higher opportunity cost of producing rye thanAlyssa, who has the comparactive advantage in the production of rye, and who has the comparative advantage in the production of rye? a.Alyssa has the comparative advantage in the production of rye and Tim has the comparative advantage in the production of corn. b. Tim has the comparative advantage in the production of rye and corn. c.Alyssa has the comparative advantage in the production of rye and corn. d. Alyssa has the comparative advantage in the production of rye and neither of them have the comparative advantage in the production of corn. 30. When a country has a comparative advantage in the production of a good, it means that it can produce this good at a lower opportunity cost than its trading partner. Then the country will specialize in the production of this good and trade it for other good. The following graphs show the production possibilities frontiers for Maldonia and Sylvania. Both contries produce lemons and tea, each initially producing 6 million pounds of lemons and 3 million pounds of tea, as indicated by the gray stars marked with the letter A. Who has the comparactive advantage in the production of tea and who has the comparative advantage in the production of lemons? a. Sylvania has the comparative advantage in the production of tea and Maldonia has the comparative advantage in the production of lemons. b. Maldonia has the comparactive advantage in the production of tea and Sylvania has the comparative advantage in the production of lemons. c. Sylvania has the comparative advantage in the production of both tea and lemons. d. Maldonia has the comparative advantage in the production of both tea and lemons. 31. Achange in which of the following will NOT shift the demand curve for hamburgers? a. the price of hot dogs. b. the price of hamburgers. c. the price of hamburger buns. d. the income of hamburger consumers. 32. An increase in ______ will cause a movement along a given demand curve which is called a change in _______. a. supply, demand. b. supply, quantity demanded. c. demand, supply. d. demand, quantity supplied. 33. Movie tickets and DVDs are substitues. If the prive of DVDs increases, what happens in the market for movie tickets? a. The supply curve shifts to the left. b. The supply curve shifts to the right. c. The demand curve shifts to the left. d. The demand curve shifts to the right. 34. The discovery of a large new reserve of crude oil will sift the ______ curve for gasoline, leading to a _____ equilibrium price. a. supply, higher b. supply, lower c. demand, higher d. demand, lower 35. If the economy goes into a recession and incomes fall, what happens in the markets for inferior goods? a. Prices and quantities both rise. b. Prices and quantities both fall. c. Prices rise, quantities fall. d. Prices fall, quantities rise. 36. 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? a. an increase in the price of peanut butter, a complement to jelly. b. an increase in the price of Marshmellow Fluff, a substitue for jelly. c. an increase in the price of grapes, an input into jelly. d. an increase in consumers' incomes, as long as jelly is a normal good. 37-39. The market price of pizzas in a college town decreased recently, and the students in an economics class are debating the cause of the price decrease. Some students suggest the price decreased because several new pizza parlors have recently opened in the area. Other students attribute the decrease in the price of pizzas due to a recent increase in the price of beer. Everyone agrees that the increase in the price of beer was caused by a recent increase in the price of grain, which is not generally used in making pizzas. 37. Which way would the demand or supply curve move based on the first group of students assumpt that the decrease in the price of pizza is due to the fact that several new pizza pariors have recently opened in the area. a. The supply curve would move to the right. b. The supply curve would move to the left. c. The demand curve would move to the right. d. The demand curve would move to the left. 38. Which way would the demand or supply curve move based on the second groups assumption? a. The supply curve would move to the right. b. The supply curve would move to the left. c. The demand curve would move to the right. d. The demand curve would move to the left. 39. Suppose that both of the events you analyzed above are partly responsibile for the decrease in the price of pizzas. Based on your analysis of the explanations offered by the two groups of students, how would you figure out which of the possible causes was the dominant cause of the decrease in the price of pizzas? a. If the equilibrium quantity of pizzas decreases, then the supply shift in the market for pizzas must have been larger than the demand shift. b. If the price decrease was large, then the supply shift in the market for pizzas must have been larger than the demand shift. c. Whichever change occured first must have been the primary cause of the change in the price of pizzas. d. If the equilibrium quantity of pizzas decreases, then the demand shift in the market for pizzas must have been larger than the supply shift. 40. Suppose the market for pizzas is unregulated. That is, the pizza prices are free to adjust based on the forces of supply and demand. If a surplus exists in the pizza market, then the current price must be _____ than the equilibrium price. For the market to reach equilibrium, you would expect ___________. a. lower and sellers to offer higher prices. b. higher and sellers to offer lower prices. c. lower and sellers to offer lower prices. d. higher and sellers to offer higher prices. 41. Alife-saving medicine without any close substitutes will tend to have a. a small elasticity of demand. b. a large elasticity of demand. c. a small elasticity of supply. d. a large elasticity of supply. 42. The price of a good rises from $8 to $ 12, and the quantity demand falls from 110 to 90 units. Calculated with the midpoint method, the elasticity is a. 1/5 b. 1/2 c. 2 d. 5 43. Alinear, downward-sloping demand curve is a. inelastic b. unit elastic c. elastic d. inelastic at some points, and elastic at others. 44. The ability of firms to enter and exit a market over time means that, in the long run, a. the demand curve is more elastic. b. the demand curve is less elastic. c. the supply cuve is more elastic d. the supply curve is less elastic. 45. An increase in the supply of a good will decrease the total revenue producers recieve if a. the demand curve is inelastic b. the demand curve is elastic c. the supply curve is inelastic d. the supply curve is elastic 46. Aprice change causes the quantity demanded of a good to decrease by 30 percent, while the total revenue of that good increases by 15 percent. What can be said about the elasticisty? a. the demand curve is inelastic b. the demand curve is elastic c. the supply curve is inelastic d. the supply curve is elastic 47. The price of coffee rose sharply last month, while the quantity sold remained the same. Each of the five people suggests and explanation: Tom: Demand increased, but suppy was perfectly inelastic. Dick: Demand increased, but it was perfectly inelastic. Harry: Demand increased, but supply decreased at the same time. Larry: Supply decreased, but demand was unit elastic. Marry: Supply decreased, but demand was perfectly inelastic. Who could possibly be right? a. Tom, Dick, and Harry b. Tom, Dick, and Marry c. Tom, Harry, and Marry d. Dick, Harry, and Larry e. Dick, Harry, and Marry 48. Which good would you expect to have more elastic demand? a. required textbooks b. Beethoven recording c. subway rides during the next six months d. water 49-50. Suppose that business travelers and vacationers have the following demand for airline tickets from New York to Boston: Price Quantity Demanded Quantity Demanded (in dollars) (business travelers) (vacationers) 150 2,100 1,000 200 2,000 8,00 250 1,900 6,00 300 1,800 4,00 49. As the price of tickets rises from $200 to $250, what is the price elasticity of demand for business travelers(Hint: Midpoint method is used)? a. 4.35 b. 0.05 c. 1 d. 0.23 50. As the price of tickets rises from $200 to $250, what is the price of elasticity of demand for vacactioners(Hint: Midpoint method is used)? a. 1.29 b. 0.76 c. 0.22 d. 0.29 51. When the government imposes a binding price floor, it causes a. the supply curve to shift to the left. b. the demand curve to shift to the right. c. a shortage of the good to develop. d. a surplus of the good to develop. 52. In a market with a binding price ceiling, an increase in the ceiling will ________ the quantity supplied, ______ the quantity demanded, and reduce the __________. a. increase, decrease, surplus b. decrease, increase, surplus c. increase, decrease, shortage d. decrease, increasem shortage 53. A$1 per unit tax levied on consumers of a good is equivalent to a. a $1 unit tax levied on producers of the good. b. a $1 unit subsidy paid to producers of the good. c. a price floor that raises the good's price by $1 per unit. d. a price ceiling that raises the good's price by $1 per unit. 54. Which of the following would increase quantity supplied, increase quantity demanded, and decrease the price that consumers pay? a. the imposition of a binding price floor b. the removal of a binding price floor c. the passage of a tax levied on producers d. the repeal of a tax levied on producers 55. When a good is taxed, the burden of the tax falls mainly on consumers if a. the tax is levied on consumers. b. the tax is levied on producers. c. supply is inelastic, and demand is elastic. d. supply is elastic, and demand is inelastic. 56-60. Arecent study found that the demand and supply schedulers for Frisbees are as follows: Price per Frisbee Quantity Demanded Quantity Supplied (dollars) (millions) (millions) 11 1 15 10 2 12 9 4 9 8 6 6 7 8 3 6 10 1 56. What are is the equilibrium price and quantity of Frisbees? a. $8, 6 million b. $7, 8 million c. $6, 10 million d. $10, 2 million 57. If the governement imposes a price floor of $2 above the equilibrium price what is the new market price? a. $10 b. $8 c. $6 d. $4 58. How many Frisbees are sold at the new market price? a. 2 million b. 10 million c. 12 million d. 14 million 59. Now, lets say that the government removes the price floor and imposes a price ceiling $1 below the former price floor. What would the new market price be? a. $9 b. $8 c. $7 d. $6 60. How many Frisbees are sold at the new market price? a. 6 million b. 8 million c. 10 million d. 4 million 61. 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 message, but they negotiated a price of $200. In this transaction, a. consumer surplus is $20 larger than producer surplus. b. consumer surplus is $40 larger than producer surplus. c. producer surplus is $20 larger than consumer surplus. d. producer surplus is $40 larger than consumer surplus. 62. The demand curve for cookies is downward sloping. When the price of cookies is $2, the quanitity demanded is 100. If the price rises to $3, what happens to the consumer surplus? a. It falls by less than $100. b. It falls by more than $100. c. It rises by less than $100. d. It rises by more than $100. 63. John has been working as a tutor for $300 a semester. When the university raises the price it pays to tutors to $400, Emily enters the market and begins tutoring as well. How much does the producer surplus rise as a result of the price increase? a. by less than $100 b. between $100 and $200 c. between $200 and $300 d. by more than $300 64. An efficient allocation of resources maximizes a. consumer surplus. b. producer surplus. c. consumer surplus plus producer surplus. d. consumer surplus minus producer surplus. 65. When a market is in equilibrium, the buyers are those with the ________ willingness to pay and the sellers are those with the _______ costs. a. highest, highest b. highest, lowest c. lowest, highest d. lowest, lowest 66. Producing a quantity larger than the equilibrium of supply and demand is inefficient because the marginal buyer's willingness to pay is a. negative. b. zero. c. positive but less than the marginal seller's cost. d. positive and greater than the marginal seller's cost. 67-69. Melissa buys an iPhone for $120 and gets consumer surplus of $80. 67. What is her willingness to pay? a. $300 b. $250 c. $200 d. $120 68. If she bought the iPhone on sale for $90, what would her consumer surplus have been? a. $110 b. $100 c. $90 d. $80 69. If the price of an iPhone were $250, what would her consumer surplus have been? a. $80 b. $110 c. $20 d. -$50 70. If the iPhone costs $100 to produce and selling price of the iPhone is $300. What is the producer surplus? a. $200 b. $100 c. $150 d. $50 1. A 2. C 3. B 4. B 5. D 6. A 7. C 8. B 9. C 10. C 11.A 12. B 13. C 14. D 15. B 16. A 17. B 18. A 19. C 20. B 21. D 22. B 23. B 24. B 25. D 26. A 27. A 28. A 29. A 30. B 31. B 32. B 33. D 34. B 35. A 36. C 37. B 38. D 39. D 40. B 41. A 42. B 43. D 44. C 45. A 46. C 47. B 48. A 49. D 50. A 51. D 52. C 53. A 54. A 55. D 56. D 57. A 58. A 59. B 60. A 61. A 62. D 63. B 64. D 65. B 66. B 67. C 68. A 69. D 70. A
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