ECON 202 : Macroeconomic Principles
ECON 202 : Macroeconomic Principles ECON 202
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Date Created: 01/29/16
ECON 202 Mid Term #1 (Set A) Please write your question set on your scantron. Answer the following multiple-choice questions: 1. Mitch has $100 to spend and wants to buy either a new ampli▯er for his guitar or a new mp3 player to listen to music while working out. Both the ampli▯er and the mp3 player cost $100, so he can only buy one. This illustrates the basic concept that (a) trade can make everyone better o▯. (b) people face trade-o▯s. (c) rational people think at the margin. (d) people respond to incentives. 2. High-school athletes who skip college to become professional athletes (a) obviously do not understand the value of a college education. (b) usually do so because they cannot get into college. (c) understand that the opportunity cost of attending college is very high. (d) are not making a rational decision since the marginal bene▯ts of college outweigh the marginal costs of college for high-school athletes. 3. Denise decides to spend three hours working overtime rather than watching a video with her friends. She earns $10 an hour. Her opportunity cost of working is (a) the $30 she earns working. (b) the $30 minus the enjoyment she would have received from watching the video. (c) the enjoyment she would have received had she watched the video. (d) nothing, since she would have received less than $30 of enjoyment from the video. 4. You go to the movieplex where movies ordinarily cost $10. You are intending to see a movie for which you have a $3 o▯ coupon good for only that movie at that time. However, when you get there you see a friend who asks if you would rather see a new release. Both movies start and end at the same time. If you decide to see the new release with your friend, what is your opportunity cost? (a) the amount you value the ▯rst movie + $3 (b) the amount you value the ▯rst movie + $10 (c) $3 (d) $10 5. A marginal change is a (a) change that involves little, if anything, that is important. (b) large, signi▯cant adjustment. (c) change for the worse, and so it is usually a short-term change. (d) small, incremental adjustment. 6. Suppose the cost of operating a 100 room hotel for a night is $10,000 and there are 5 empty rooms for tonight. If the marginal cost of operating one room for one night is $30 and a customer is willing to pay $60 for the night, the hotel manager should (a) rent the room because the marginal bene▯t exceeds the marginal cost. 1 (b) rent the room because the marginal bene▯t exceeds the average cost. (c) not rent the room because the marginal bene▯t is less than the marginal cost. (d) not rent the room because the marginal bene▯t is less than the average cost. 7. Brenda is an excellent baker and Floyd has a plentiful farm. If Floyd trades eggs and butter to Brenda for some of Brendas bread and pastries, (a) only Floyd is made better o▯ by trade. (b) only Brenda is made better o▯ by trade. (c) both Floyd and Brenda are made better o▯ by trade. (d) neither Floyd nor Brenda are made better o▯ by trade. 8. A company that formerly produced software went out of business because too many potential cus- tomers bought illegally-produced copies of the software instead of buying the product directly from the company. This instance serves as an example of (a) market power. (b) ine▯cient trade. (c) inadequate enforcement of property rights. (d) comparative advantage. 9. When a single person (or small group) has the ability to in uence market prices, there is (a) competition. (b) market power. (c) an externality. (d) a lack of property rights. 10. What is the most important factor that explains di▯erences in living standards across countries? (a) the quantity of money (b) the level of unemployment (c) productivity (d) equality 11. In the short run, an increase in the money supply is likely to lead to (a) lower unemployment and lower in ation. (b) lower unemployment and higher in ation. (c) higher unemployment and lower in ation. (d) higher unemployment and higher in ation. 12. Suppose that the Federal Reserve Bank announces that it will be making a policy change to increase the money supply. This is likely because (a) the Federal Reserve Bank is worried about in ation. (b) the Federal Reserve Bank is worried about unemployment. (c) the Federal Reserve Bank is hoping to reduce the demand for goods and services. (d) the Federal Reserve Bank is worried that the economy is growing too quickly. 13. Economic models 2 (a) are people who act out the behavior of ▯rms and households so that economists can study this behavior. (b) are usually detailed replications of reality. (c) incorporate simplifying assumptions that often contradict reality, but also help economists better understand reality. (d) are useful to researchers but not to teachers because economic models omit many details of the real-world economy. 14. A model that shows how dollars ow through markets among households and ▯rms is called the. (a) production possibilities frontier. (b) circular- ow diagram. (c) demand and supply diagram. (d) comparative advantage model. 15. In the circular- ow diagram, which of the following items ows from ▯rms to households through the markets for goods and services? (a) goods and services (b) dollars paid to land, labor, and capital (c) dollars spent on goods and services (d) wages, rent, and pro▯t 16. Which arrow represents the ow of wages, rental payments, interest and pro▯ts in Figure 1? Figure 1: Circular- ow diagram. (a) A (b) B (c) C (d) D 17. A production possibilities frontier can shift outward if (a) government increases the amount of money in the economy. (b) there is a technological improvement. (c) resources are shifted from the production of one good to the production of the other good. (d) the economy abandons ine▯cient production methods in favor of e▯cient production methods. 3 18. A certain production possibilities frontier shows production possibilities for two goods, jewelry and clothing. Which of the following concepts cannot be illustrated by this model? (a) the ow of dollars between sellers of jewelry and clothing and buyers of jewelry and clothing (b) the trade-o▯ between production of jewelry and production of clothing (c) the opportunity cost of clothing in terms of jewelry (d) the e▯ect of economic growth on production possibilities involving jewelry and clothing 19. The most obvious bene▯t of specialization and trade is that they allow us to (a) work more hours per week than we otherwise would be able to work. (b) consume more goods than we otherwise would be able to consume. (c) spend more money on goods that are bene▯cial to society, and less money on goods that are harmful to society. (d) consume more goods by forcing people in other countries to consume fewer goods. Figure 2: Production possibilities frontier. 20. Refer to Figure 2. At which point is this economy producing its maximum possible quantity of pans? (a) J. (b) L. (c) M. (d) N. 21. The economy in Figure 2 has the ability to produce at which point(s)? (a) J, K, M, N (b) K, M, N (c) K, N (d) M 22. The economy in Figure 2 cannot produce at which point(s)? (a) J (b) J, L 4 (c) J, L, M (d) L 23. In Figure 2, e▯cient production is represented by which point(s)? (a) J, K, N (b) K, M, N (c) K, N (d) L, M Assume that the two countries of Andia and Zardia can switch between producing wheat and producing beef at a constant rate. The production opportunities in these two countries are given in Table 1. Table 1: Production opportunities in Andia and Zardia. Minutes needed to produce 1 Bushel of wheat Pound of beef Andia 20 12 Zardia 15 10 24. Refer to Table 1. Assume that Andia and Zardia each has 360 minutes available. If each country divides its time equally between the production of wheat and beef, then total production is (a) 10.5 bushels of wheat and 16.5 pounds of beef. (b) 21 bushels of wheat and 33 pounds of beef. (c) 35 bushels of wheat and 22 pounds of beef. (d) 42 bushels of wheat and 66 pounds of beef. 25. Refer to Table 1. Which of the following combinations of wheat and beef could Andia produce in one 8-hour day? (a) 6 bushels of wheat and 35 pounds of beef (b) 9 bushels of wheat and 25 pounds of beef (c) 15 bushels of wheat and 20 pounds of beef (d) 24 bushels of wheat and 40 pounds of beef Assume that Japan and Korea can switch between producing cars and producing airplanes at a constant rate. The labor hours needed in each country to produce the respective goods are given in Table 2. Table 2: Production in Japan and Korea. Labor hours needed to make 1 Car Airplane Japan 30 150 Korea 50 150 26. Refer to Table 2. Japans opportunity cost of one airplane is car and Korea’s opportunity cost of one airplane is car. (a) 1/5, 1/3 (b) 1/5, 3 5 (c) 5, 1/3 (d) 5, 3 27. Refer to Table 2. Japan has an absolute advantage in the production of , and Korea has an absolute advantage in the production of . (a) cars, airplanes. (b) cars, neither. (c) airplanes, cars. (d) airplanes, neither. 28. Refer to Table 2. Japan has a comparative advantage in the production of , and Korea has a comparative advantage in the production of . (a) airplanes, cars. (b) cars, airplanes. (c) both, neither. (d) neither, both. 29. Refer to Table 2. Japan should specialize in the production of , and Korea should specialize in the production of . (a) airplanes, cars. (b) cars, airplanes. (c) both, neither. (d) neither, both. 30. Refer to Table 2. Assume that Japan and Korea each has 2400 hours available. Originally, each country divided its time equally between the production of cars and airplanes. Now, each country spends all its time producing the good in which it has a comparative advantage. As a result, the total output of cars increases by . (a) 16. (b) 40. (c) 64. (d) 80. 6
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